A persistent problem
Melvyn R. Paisley, the former assistant secretary of the U.S. Navy, won the Distinguished Service Cross — a U.S. combat decoration second only to the Medal of Honor — as a P-47 Thunderbolt ace with nine victories in Europe during World War II.
Overshadowing that achievement, though, is his violation of the trust the Reagan administration placed in him as a senior official.
Confronted with irrefutable evidence, Paisley admitted accepting hundreds of thousands of dollars in bribes for fraudulently helping his private-sector associates win defense equipment contracts worth hundreds of millions of dollars. (See Melvyn Paisley, 77, Figure in Scandal, Dies, by Christopher Marquis, The New York Times, Dec. 26, 2001.)
Paisley's conviction and four-year sentence formed the centerpiece of the FBI's Operation Ill Wind, a 1986-1989 investigation into the biggest procurement frauds in U.S. history.
Eight other government officials, 42 Washington consultants and executives, and seven military contractors also were jailed, heavily fined or both for exchanging payments for confidential information and fraudulent preference over legitimate bidders. In 1988, passage of the Procurement Integrity Act introduced measures to curb such abuses.
Yet more than 10 years later, rampant procurement-related conflicts of interest persisted.
In one typical case, James Lee Loman, a purchasing manager at Tinker Air Force Base in Midwest City, Oklahoma, began collecting kickbacks — totaling $838,000 from 2002 through 2006 — for repeatedly favoring the inflated bids of an unscrupulous supplier of aircraft parts.
Loman denied any wrongdoing, but a jury found him guilty in early 2014; his advanced age and poor health got him a lenient 30-month sentence. Tighter regulation hadn't stemmed the tide of procurement corruption and hadn't done much, if anything, to help detect and prevent betrayal of trust.
Meanwhile, the Internet's explosive growth spurred development of online procurement systems expected to boost efficiency, cut costs and improve fraud detection and prevention. Time would tell.
As the new millennium progressed, governments and non-governmental organizations (NGOs) around the world implemented electronic procurement systems, hoping to reap their widely touted benefits. Corporate giants soon followed suit. As expected, e-procurement systems proved to be more efficient and economical than their paper-based predecessors. But a nagging truth remained: anyone entrusted with e-procurement responsibilities still might be able to commit fraud and get away with it. It was only a matter of time before someone would try.
In 2014, a group of fraudsters did, and were caught. Late last year, prosecutors in Mumbai, the Indian megacity formerly known as Bombay, indicted more than 20 senior and mid-level civil service employees of the Brahminmumbai Municipal Corporation (BMC) for rigging bids in an e-procurement system designed to reduce fraud and expenses. Their take? $318 million in kickbacks, according to charges filed against them in the still pending case.
While court documents aren't publicly available, media accounts indicate that the primary question isn't whether the fraud took place, but rather how many dozens of bureaucrats with prohibited conflicts of interest took part in it. (See FIR lodged against 22 BMC staffers in e-tender scam, by Ahmed Ali, The Times of India, Nov. 20, 2014.) Thus, the BMC case effectively dashed any hope that technology, by itself, can adequately mitigate the enduring problem posed by betrayal of trust.
Zack has been watching the case with interest. "On several occasions the fraudsters at BMC opened its e-procurement system in the middle of the night for bids on open contracts — but only by favored vendors they conspired with," he says.
This effectively prevented legitimate vendors from bidding; they hadn't been able to access the system during normal business hours. BMC now ensures that its system is open for bidding only during normal business hours, and that bidding on open contracts is available to all interested parties.